DEPFA seeks to avoid Anglo Irish fate with new-style consent

LONDON, Nov 22 (IFR) - DEPFA Bank is hoping its new-style
consent exit exercise, which could result in one of the most
aggressive hybrid Tier 1 liability management exercises seen
this year, will avoid bondholder lawsuits further down the line.

The bailed out German lender is seeking to amend the terms
and conditions on three hybrid Tier 1 securities totalling
EUR1.2bn so that it can retire them at a deep discount instead
of calling them at par at the next call dates.

The bank has structured its exercise differently to how the
Irish banks did in 2010/2011 when they included exit consent
measures designed to coerce non-consenting bondholders to take
part in their distressed buy-backs.

A surprise judgement in the English High Court in August
this year ruled that Anglo Irish Bank had acted unlawfully in
November 2010 by using such a measure to coerce German credit
investor Assenagon to tender its EUR17m of subordinated bonds
for just EUR170 and sparked fears of a wave of legal action by
disgruntled investors.

Instead, DEPFA is offering a 1% sweetener for bondholders
who agree to a change in the terms and conditions of the bonds
by December 18 ahead of the December 20 formal meeting deadline
and will pay them 30% of face value.

If DEPFA gets at least a third of bondholders to approve, by
a simple majority in each of the bonds, it will be able to
redeem the rest at 29% of par, a far cry from what happened to
the hold-outs in other Irish liability management exercises. The
pricing is roughly in line with where the bonds had been quoted
in the secondary market.

"It would appear that DEPFA has sought to close off issues
that arose from the Assenagon decision in the English High Court
regarding Anglo Irish Bank's coercive tender offer to its
subordinated bond holders. However, it is not clear if this will
be entirely successful yet," said Steven Friel, partner at law
firm Brown Rudnick, which has been engaged by some bondholders
in DEPFA.

NO THREATS TO HOLD OUTS?

His view was echoed by Simon Adamson, analyst at
CreditSights, who wrote in a note that it was a way of
instigating a coercive buy-back without the need to threaten
hold-outs with a penalty.

According to a debt banker, the quorum DEPFA needs to get as
well as the simple majority vote is a lot lower than what is
normally seen on consent solicitations, where usually two-thirds
of bondholders need to approve the changes with 75% voting in
favour.

"If investors think they can sit back and do nothing and get
away with it, they are wrong," he said. "If you don't like what
DEPFA is doing, then you need to be pro-active." He added that
the low thresholds were legal.

DEPFA is targeting a 6.5% EUR400m perpetual issued by DEPFA
Funding II LP, a 7% EUR300m perpetual issued by DEPFA Funding
III LP, both of which have a call next year, and a 5.029%
EUR500m perpetual callable in 2017 issued by DEPFA Funding IV
LP.

In a statement, the bank said that consent was a voluntary,
market-based approach which reflected the distressed nature of
the securities.

DEPFA has not paid coupons on the bonds since 2009 and has
already skipped calls on the deals.

"We think given the damage DEPFA suffered in the financial
crisis and its stressed financial condition, a buyback of Tier 1
securities at 30% of par is as good as holders could have
expected," CreditSights' Adamson wrote.

DEPFA could leave the bonds outstanding and continue not to
pay coupon in perpetuity or until the bank recovers, but a
successful exercise will create additional Core Tier 1 capital.

According to Adamson, if the consent goes through, DEPFA
could make a EUR840m capital gain.